The Department of Economics Macroeconomics Seminar presents
"What is the Shape of the Risk-Return Relation?"
with Allan Timmermann, Professor of Finance, UC San Diego
Tuesday, May 22, 2012
Social Science Plaza A, Room 3132
Using a novel and flexible regression approach that avoids imposing restrictive modeling assumptions, Timmermann finds evidence of a non-monotonic relation between conditional volatility and expected stock market returns. At low and medium levels of conditional volatility there is a positive risk return trade-off, but this relation is inverted at high levels of volatility. Conventional linear risk-return models are strongly rejected by the data. Timmermann proposes a new measure of risk based on the conditional covariance between observations of a broad economic activity index and stock market returns. Using this covariance-based risk measure, he finds clear evidence of a positive and monotonic risk-return trade-off.
For further information, please contact Gloria Simpson, firstname.lastname@example.org or 949-824-5788.